What counts as fixed versus variable?

Fixed costs stay the same regardless of how much you sell — rent, insurance, salaried staff. Variable costs are incurred per unit — materials, packaging, payment fees, piece-rate labour. If it disappears when you sell nothing, it is variable.

Why does a small price cut move break-even so much?

Because the cut comes entirely out of contribution, which is a fraction of the price. Cutting a $14 price by $2 is a 14% discount but a 26% cut in contribution, and break-even moves with contribution, not with price.

What is margin of safety?

How far sales can fall from where they are before you drop below break-even, as a percentage. A 25% margin of safety means a quarter of your volume could vanish before you stop covering costs.

Break-even calculator

Break-even is not a cost question, it is a contribution question. What matters is the gap between price and variable cost — and when that gap closes, no volume saves you.

Fixed costs for the period

Rent, salaries, insurance — the costs that do not move with how much you sell.Variable cost per unit

Selling price per unit

Units you sell now

Break-even units: 538
Break-even revenue: $7,538
Profit at your volume: $1,416

Each unit contributes $7.80 (55.7% of the price) toward fixed costs. Sales could fall 25.2% before you stop covering costs.

The formulas

contribution per unit = price - variable cost

break-even units = fixed costs / contribution per unit

break-even revenue = break-even units x price

profit = units sold x contribution - fixed costs

margin of safety = (units sold - break-even units) / units sold

If contribution is zero or negative there is no break-even volume at all. That is not a rounding problem to guard against — it is the answer, and selling more makes it worse.

A worked example

$4,200 of fixed costs a month, $6.20 of variable cost per unit, sold at $14.00:

contribution = 14.00 - 6.20 = 7.80 (55.7% of price)

break-even = 4,200 / 7.80 = 539 units → $7,538 of revenue

at 720 units: profit = 720 x 7.80 - 4,200 = 1,416

margin of safety = (720 - 539) / 720 = 25.2%

Now cut the price to $12.00 to compete. Contribution falls to $5.80 — a 14% price cut — and break-even rises to 724 units, a 34% jump. Contribution falls much faster than price does, which is why discounting is more expensive than it looks.

Assumptions and limits

One product at one price. A real business with a mix needs a weighted average contribution.
Fixed costs are only fixed within a range — doubling volume often needs another oven, van or person.
Cash and profit are not the same. Breaking even on paper still fails if customers pay in ninety days.
This is a planning calculation, not financial advice.

Doing this more than once?

This answers one scenario. These compare several price and cost scenarios at once, and track whether the cash actually arrives — a business can be above break-even and still run out of money.

Questions

What counts as fixed versus variable?: Fixed costs stay the same regardless of how much you sell — rent, insurance, salaried staff. Variable costs are incurred per unit — materials, packaging, payment fees, piece-rate labour. If it disappears when you sell nothing, it is variable.
Why does a small price cut move break-even so much?: Because the cut comes entirely out of contribution, which is a fraction of the price. Cutting a $14 price by $2 is a 14% discount but a 26% cut in contribution, and break-even moves with contribution, not with price.
What is margin of safety?: How far sales can fall from where they are before you drop below break-even, as a percentage. A 25% margin of safety means a quarter of your volume could vanish before you stop covering costs.

Last updated 22 August 2026.